Agrium forced into the proxy ring

Agrium CEO Michael Wilson argues that shareholders ‘will receive far greater value, with less risk, under the company’s current strategy.’

TODD KOROL/REUTERS

BOYD ERMAN

March 26, 2017November 19, 2012

Another large Canadian company is facing a battle in the boardroom, as the biggest shareholder of Agrium Inc. attempts to replace almost half of the company's directors as part of a campaign to break up the business.

Jana Partners LLC, a New York hedge fund, is proposing a slate of five new directors for Agrium's 11-person board, including three corporate executives and a former Canadian agriculture minister.

The fifth nominee is Jana's founder, Barry Rosenstein.

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Calgary-based Agrium owns a global network of facilities where it makes fertilizer, and also has a network of farm-products stores in Canada, the United States, Australia and South America.

For months, Jana has criticized Agrium for what it says are elevated expenses and poor use of capital, and has argued that shareholders would be better off if the farm stores were split into a separate company. Agrium has resisted that idea.

The prospect of a proxy fight raises the stakes, and to help its cause, Jana has also increased its stake in the company to 6 per cent from 4 per cent.

Agrium joins a growing list of big Canadian companies that have become targets of activist investors, shaking a sense of invulnerability in the boardrooms of the Canadian corporate establishment.

U.S. hedge fund manager Bill Ackman successfully took on Canadian Pacific Railway Ltd., sparking an overhaul of the board and management. A Canadian hedge fund manager, Greg Boland, won a seat on the board of Maple Leaf Foods Inc., while hardware seller Rona Inc. is now embroiled in a proxy battle with an investor who wants to oust all its directors after they rebuffed a takeover offer from U.S. rivals Lowe's Cos Inc.

Jana has been steadily increasing the pressure on Agrium over recent months. First, the fund worked behind the scenes to rally support among large shareholders and analysts, before beginning a public offensive later in the summer. Mr. Rosenstein then made Agrium his topic last month at a presentation to the Value Investing Congress, a closely watched gathering where well-known investors present their best ideas.

In addition to criticisms of Agrium's structure and performance, Jana has sought to paint a picture of Agrium as unresponsive to shareholder concerns. The hedge fund has accused Agrium of trying to mislead investors about the value of the retail business by switching the companies it used as comparisons.

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Mr. Rosenstein said he doesn't know how many shareholders will support his slate, but he is optimistic. "We're highly confident that a large and growing number of shareholders want the company to stop stonewalling and start addressing the issues we've raised," he said.

Agrium, for its part, has said it has examined the idea of splitting the company and found it wanting. The company has been given breathing room by a rising share price and a shareholder base that, Jana aside, has not been particularly vocal. After Mr. Rosenstein presented his case at the Value Investing Congress, Agrium chief executive officer Michael Wilson said there was "nothing new" in Jana's statements and that shareholders "will receive far greater value, with less risk, under the company's current strategy."

Since then, the fight between Jana and Agrium had largely gone quiet. Now, with a full-fledged proxy battle in the works, that is sure to change. Both sides will have to fight hard for support at Agrium's annual meeting, which usually takes place in May.

Jana's Mr. Rosenstein likely faces a tougher challenge at Agrium than Mr. Ackman and Mr. Boland faced at their targets. CP and Maple Leaf Foods were easy marks because they were clear underperformers on the stock market and the income statement, and there were many other shareholders ready for a change.

Agrium stock has generally been on the rise, gaining 26 per cent in the past year even after a recent selloff in the wake of disappointing earnings. Because of that, Mr. Rosenstein must instead make a more nuanced case that Agrium has not been as successful as it could have been if the company's management and board oversight were sharper.

From a newly constituted board, Jana is seeking what it calls an "unbiased" review of Agrium's structure and Jana's idea of spinning off the retail business, as well as improved use of capital and better operational performance.

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"We're still 100-per-cent confident the [retail] business should be separated from the wholesale business," Mr. Rosenstein said. "We're saying they need to start their analysis from scratch rather than seeking to justify their desired outcome."

Jana's board candidates include three executives from companies in the distribution business, addressing what Jana says is a lack of distribution and retail experience on the Agrium board.

All three have ties to companies that have been held up as comparable to Agrium. David Bullock was chief financial officer and chief operating officer of United Agri Products Inc., a farm-supply centre operator that Agrium bought. Stephen Clark ran Brenntag AG, a chemical distribution company. Mitchell Jacobson is chairman and largest shareholder of MSC Industrial Direct Co. Inc., an equipment distributor.

In a bid to connect more with farmers, Jana is also putting forward as a candidate Lyle Vanclief, who was Canada's agriculture minister for six years to 2003, after a long career in the farm sector.

Depending on how things unfold, Jana could seek to replace more of the board. In the Canadian Pacific battle, Mr. Ackman originally sought to install only two directors, but ended up with seven after the fight became hostile. "We don't rule anything out," Mr. Rosenstein said.

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